ACIT, Cochin V. Skyline builders, Cochin

ITA 1161/COCH/2005

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52292 (ITAT-COCHIN)
• Duration Of Justice: 6 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 27-09-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 18-11-2005
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: A S NARAYANAMOORTHY CAAR
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 1161/COCH/2005 ASSESSMENT YEAR:1997-98 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(2), ERNAKULAM. VS. M/S. SKYLINE BUILDERS, RAJAJI ROAD, ERNAKULAM, COCHIN-35 [PAN:AAMFS 8117N] (REVENUE-APPELLANT) (ASSESSEE- RESPONDENT) REVENUE BY MS. S. VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI A.S.NARAYANAMOORTHY, CA-AR DATE OF HEARING 28/09/2011 DATE OF PRONOUNCEMENT 25/11/2011 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE REVENUE CONTESTING THE OR DER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOCHI (CIT(A FOR SHORT) DATED 25.8.2005 FOR THE ASSESSMENT YEAR (A.Y.) 1997-98. 2. THE BACKGROUND FACTS OF THE CASE ARE THAT THE AS SESSMENT WAS CONCLUDED IN THE FIRST INSTANCE VIDE ORDER U/S. 143(3) OF THE INCOME-TAX A CT, 1961 ('THE ACT', HEREINAFTER) DATED 22.02.2000, AT AN INCOME OF ` 29,97,220/-, AS AGAINST THE RETURNED INCOME OF ` 27,29,890/- PER RETURN FILED ON 02.03.1998. THE SAME STOOD RED UCED TO ` 28,07,750/- IN FIRST APPEAL, VIDE THE ORDER OF THE FIRST APPELLATE AUTHORITY DAT ED 10/10/2004. THE ASSESSMENT WAS SUBSEQUENTLY REVISED VIDE ORDER U/S. 143(3) R.W.S. 147 OF THE ACT DATED 28.2.2005 BY INCLUDING PRIOR PERIOD EXPENSES OF ` 6,23,052/- TO THE ASSESSEES INCOME, SO THAT THE SA ME STOOD ASSESSED AT ` 34,30,800/-. THE ASSESSEE CONTESTED THE SAME IN AP PEAL, CHALLENGING I.T.A. NO.1161 /COCH/2005 ACIT, ERNAKULAM V. SKYLINE BUILDERS 2 THE REASSESSMENT ON THE GROUND OF JURISDICTION AS W ELL, AND FOUND FAVOUR WITH THE LD. CIT(A) ON THAT SCORE VIDE HIS IMPUGNED ORDER. IN F URTHER APPEAL, THE TRIBUNAL (COCHIN BENCH) VIDE ITS ORDER DATED 28.7.2006 CONFIRMED THE SAME. ON APPEAL BY THE REVENUE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT, HOWEV ER, THE ORDERS OF THE FIRST AND SECOND APPELLATE AUTHORITY STOOD REVERSED VIDE ITS DECISIO N DATED 10.03.2010 (IN I.T.A. NO. 374/2009 / COPY PLACED ON RECORD). THE HONBLE COU RT, HOWEVER, REMANDED THE MATTER BACK TO THE TRIBUNAL FOR A DECISION ON MERITS, WHIC H WERE NOT CONSIDERED BY IT IN THE FIRST INSTANCE; HAVING HELD THE (RE)ASSESSMENT AS WITHOUT JURISDICTION. HENCE, THE PRESENT PROCEEDINGS. 3. WE HAVE HEARD PARTIES, AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DISALLOWANCE IS IN RESPECT OF, AS AFORE-STATED, PRI OR PERIOD EXPENSES, THE DETAILS OF WHICH ARE AS UNDER:- DETAILS OF PRIOR PERIOD EXPENSES (AMOUNT IN ` ) PURCHASE OF CEMENT FROM ACC LTD. 3,89,200 INTEREST PAID ON UNSECURED LOAN TO ANNIE JOHN 55,021 INTEREST PAID TO CUSTOMER MR. SREEDHAR ON 29,097 CANCELLATION OF BOOKING AND REFUND OF AMOUNT PAID COST OF PAINTS, MATERIALS AND LABOUR CHARGES FOR 1,49,734/70 BELAIR PROJECT PAID TO SKYLINE SYSTEMS AND SERVICES 3.1 WE SHALL DISCUSS THE ISSUE ON MERITS FOR EACH O F THE FOUR ITEMS COMPRISING THE IMPUGNED DISALLOWANCE. THE ASSESSEES CASE THOUGH F OR ALL SUMS IS THE SAME, I.E., THAT THE LIABILITY CRYSTALLISED DURING THE YEAR UNDER REFERE NCE AND, AS SUCH, THOUGH RELATING TO A PRIOR PERIOD, QUALIFIES FOR DEDUCTION FOR THE RELEV ANT PREVIOUS YEAR. THE REVENUES CASE, WHICH IS AGAIN COMMON FOR ALL THE DISALLOWED EXPENS ES, IS THAT THE ASSESSEE HAS BEEN UNABLE TO FURNISH ANY DOCUMENTARY EVIDENCE IN SUPPO RT OF ITS CLAIM OF CRYSTALLISATION OF THE SAID LIABILITIES DURING THE RELEVANT PREVIOUS Y EAR. I.T.A. NO.1161 /COCH/2005 ACIT, ERNAKULAM V. SKYLINE BUILDERS 3 3.2 AT THE OUTSET, HOWEVER, THE LD. AR CONVEYED THE NON-PRESSING OF THE DISALLOWANCE OF EXPENDITURE IN RESPECT OF GOODS AND SERVICES PAI D TO M/S. SKYLINE SYSTEMS AND SERVICES AT ` 1.50 LAKHS. ITS DISALLOWANCE, IS, THEREFORE, CONFI RMED. 3.3 WITH REGARD TO THE PURCHASE OF CEMENT FROM M/S. ACC LTD., THE ASSESSEE STATED THAT THOUGH THE SUPPLIER HAD EFFECTED AN INCREASE I N THE PRICE OF THE CEMENT BAGS DURING AN EARLIER YEAR, IT CONTINUED TO BILL THE ASSESSEE, A BULK CONSUMER AND, THEREFORE, A PREFERRED CUSTOMER, AT THE SAME RATE, AS THE INCREASE WAS NOT ACCEPTABLE TO IT (THE ASSESSEE). THE ISSUE (OF PRICE INCREASE) WAS FINALLY SETTLED BY TH E TRADING PARTIES AFTER PROTRACTED NEGOTIATIONS AND, ACCORDINGLY, AN ADDITIONAL LIABIL ITY - AS AT THE END OF THE RELEVANT YEAR, I.E., 31.3.1997 - DETERMINED AT ` 12,50,500/-, WHICH WAS BOOKED PER JOURNAL VOUCHERS AS AT THE YEAR-END. THE AUDITOR SOUGHT THE DETAILS OF THE SAID LIABILITY, AND ON THAT BASIS DETERMINED THAT RELATABLE TO THE PURCHASES PRIOR TO THE RELEVANT PREVIOUS YEAR (F.Y. 1996- 97), AT THE IMPUGNED SUM OF ` 3.89 LAKHS, DULY REPORTING THE SAME PER ANNEXURE 5 TO THE AUDIT REPORT UNDER SECTION 44AB OF THE ACT. NO FURT HER DETAILS WERE CONSIDERED OR ARE AVAILABLE IN THE MATTER FOR BEING PRODUCED BEFORE T HE TRIBUNAL. WE HAVE CONSIDERED THE ISSUE, AS WELL AS PERUSED THE RELEVANT MATERIAL. THE DETAILS CANNOT BE SAID TO BE COMPLETE. SO, HOWEVER, IT IS APPARENT FROM THE CREDITORS ACCOUNT FILED BEFORE US (PB PG. 7 TO 12), THAT THE PURCHASES STAND BOOKED AT THE BILLED AMOUNT. IT IS, AGAIN, APPARENT THAT THE JOURNAL EN TRIES AS AT THE YEAR-END, BOOKING ADDITIONAL LIABILITY BY WAY OF CREDITS TO THE SUPPL IERS ACCOUNT, ARE ONLY IN RESPECT OF PURCHASE OF CEMENT FOR DIFFERENT SITES AT WHICH THE CONSTRUCTION WAS IN PROGRESS, AND FOR WHICH THE PURCHASES WERE MADE. THE AUDITOR, ON AN E XAMINATION OF THE DETAILS, SEGREGATED THE AMOUNT IN RESPECT OF PURCHASES FOR T HE PERIOD/S PRIOR TO THE PREVIOUS YEAR UNDER REFERENCE AND DULY REPORTED THE SAME. UNDER T HE CIRCUMSTANCES, THEREFORE, WE CONSIDER THE ASSESSEES CLAIM AS VALID. IT IS TRIT E THAT IN RESPECT OF A CONTRACTUAL LIABILITY WHICH IS DISPUTED, THE SAME, WHERE OTHERWISE ALLOWA BLE, THE YEAR OF ITS SETTLEMENT WOULD BE RELEVANT FOR CLAIMING IT [REFER: CIT V. PHALTON SUGAR WORKS LTD ., 162 ITR 622 (BOM.)]. IN FACT, WE OBSERVE THAT THE REVENUE DOES NOT CONTE ST THIS LEGAL POSITION BUT ONLY THAT THE RELEVANT FACTS ARE NOT PROVED. ON FACTS, WE DO NOTE THAT THE DATE/S OF NEGOTIATION AND THE I.T.A. NO.1161 /COCH/2005 ACIT, ERNAKULAM V. SKYLINE BUILDERS 4 SETTLEMENT HAVE NOT BEEN DISCLOSED, AND WHICH COULD BE MATERIAL, AS IT COULD WELL BE AFTER THE CONCLUSION OF THE RELEVANT YEAR. SO HOWEVER, TH E ACCOUNTS ARE PREPARED ON THE BASIS OF THE BEST AVAILABLE INFORMATION AND, THEREFORE, WHER E RELIABLE DETAILS IN ITS RESPECT ARE AVAILABLE, THE ACCOUNTS SHOULD NECESSARILY BEAR PRO VISION FOR ALL KNOWN AND ASCERTAINED LIABILITIES. WE, THEREFORE, CONFIRM THE ALLOWANCE OF THE SAID LIABILITY. 3.4 THE THIRD ITEM IS IN RESPECT OF INTEREST ON A T EMPORARY LOAN FROM ONE, ANNIE JOHN. A COPY OF THE COMMUNICATION DATED 09.10.2000 ON THE ASSESSEES BEHALF TO THE JOINT COMMISSIONER OF INCOME-TAX, SPECIAL RANGE-2, ERNAKU LAM, WHICH CARRIES THE ASSESSEES EXPLANATION IN RESPECT OF EACH OF THE FOUR LIABILIT IES IS PLACED ON FILE. PER THE SAME, THE LOAN OF ` 8 LAKHS WAS TAKEN ON 18.5.1995 AND REPAID IN TWO IN STALMENTS, I.E., AT ` 5 LAKHS (12.3.1996) AND THE BALANCE ` 3 LAKHS ON 14.10.1996. FURTHER, THE LOAN CARRIED NO INTEREST OBLIGATION, WHICH, ACCORDINGLY, WAS NOT BOOKED WHIL E CLOSING THE ACCOUNTS FOR THE F.Y. 1995-96. ON A SUBSEQUENT CLAIM BY THE CREDITOR-LEN DER, HOWEVER, THE MATTER WAS `SETTLED, AND INTEREST OBLIGATION OF ` 75,749/- BOOKED IN THE ACCOUNTS FOR THE FOLLOWING YEAR (FY 1996-97). THE SUM OF ` 55,021/- REPRESENTS THE INTEREST FOR THE PERIOD FRO M MAY, 1995 TO MARCH, 1996, AND, ACCORDINGLY, CLASSIFIED A S A PRIOR PERIOD EXPENSE. WE DO NOT FIND THE ASSESSEES CLAIM AS TENABLE. THERE IS NOTHING TO SHOW THAT THE LOAN WAS WITHOUT ANY INTEREST OBLIGATION, I.E., WHE N ADVANCED. IN FACT, THE INTEREST LIABILITY STANDS BOOKED IN THE ACCOUNTS VIDE JOURNAL VOUCHER (J 14215) ON 14.10.1996 ITSELF, I.E., THE DATE ON WHICH THE LOAN STOOD FINALLY REPAID, AN D ALSO DISCHARGED ON THE SAME DAY ITSELF (VIDE CHEQUE (VOUCHER NO. 31420)). AS SUCH, THE ASS ESSEES CLAIM TO THIS EFFECT IS ON THE CONTRARY DISPROVED (REFER PB PGS. 15, 16). EVEN OT HERWISE, THE ASSESSEE HAS NOT STATED ANY REASON/S FOR THE LOAN HAVING BEEN RECEIVED WITH OUT INTEREST OBLIGATION, WHICH WOULD NORMALLY BE THE CASE. IN ANY CASE, THERE WOULD BE S OME NON-MONETARY INTEREST - WHILE NONE STANDS STATED AND PRESUMABLY IT IS ONLY ON T HE NON-SATISFACTION OF THE SAME THAT COMPENSATION BY WAY OF INTEREST HAS BEEN DEMANDED. AS SUCH, WE ARE NOT MOVED BY THE ASSESSEES ARGUMENT, WHICH WE FIND TO BE UNSUBSTANT IATED AND DISPROVED AND, THUS, CONFIRM THE DISALLOWANCE IN ITS RESPECT. WE DECIDE ACCORDINGLY. I.T.A. NO.1161 /COCH/2005 ACIT, ERNAKULAM V. SKYLINE BUILDERS 5 3.5 THE FOURTH AND FINAL GROUND IS QUA INTEREST PAID TO ONE, SHRI SREEDHAR, IN RESPECT OF A BOOKING DEPOSIT. AS PER THE DETAILS, VIDE THE COM MUNICATION AFORESAID, THE SAID CUSTOMER BOOKED A FLAT UNDER THE PROJECT SILVER OA K ON 19.10.1995 (PB PGS. 2, 3) (REFERENCE NO. 1781/2000), BY PAYING A SUM OF ` 6 LAKHS UP TO 31.3.1996. HOWEVER, THE CUSTOMER HAD TO CANCEL THE BOOKING ON ACCOUNT OF SO ME EMERGENT SITUATION/FINANCIAL DIFFICULTIES, WHICH WAS DONE IN DECEMBER, 1996. EV EN THOUGH SUCH CANCELLATION DOES NOT ENTAIL ANY INTEREST, IN VIEW OF THE GENUINENESS OF THE REASON/S ATTENDING THE CANCELLATION, AS WELL AS FOR COMMERCIAL EXPEDIENCY, THE ASSESSEE AGREED TO PAY INTEREST. THE AMOUNT RELATABLE TO THE PERIOD UP TO 31.3.1996 WORKING TO THE IMPUGNED SUM OF ` 29097/-, THE SAME WAS, ACCORDINGLY, SHOWN AS A PRIOR PERIOD EXPE NSE IN THE AUDIT REPORT. WE HAVE CONSIDERED THE MATERIAL ON RECORD, WHICH I S THE COPY OF THE ACCOUNT OF THE SAID CUSTOMER (PB PGS. 13, 14). IT IS QUITE UNDERST ANDABLE THAT THE CANCELLATION OF BOOKING WOULD NOT NORMALLY BEAR ANY INTEREST. FURTHER, THE ASSESSEE COULD NOT HAVE ANTICIPATED AT THE END OF THE IMMEDIATELY PRECEDING YEAR (31.3.199 6) OR AT THE TIME OF CLOSING OF ITS ACCOUNTS FOR THE SAID PERIOD, THAT THE CUSTOMER WOU LD SUBSEQUENTLY (DECEMBER, 1996) FORECLOSE THE ACCOUNT AND, TWO, ALSO DEMAND INTERES T FOR THE PERIOD OF BOOKING. SECONDLY, THE SAID FLAT WOULD BE AVAILABLE FOR BEING ALLOTTED TO ANOTHER CUSTOMER, AND WHICH WOULD IN ALL PROBABILITY FETCH A HIGHER RATE; THE PRICE R ISE IN THE REAL ESTATE BEING CONTINUOUS AND UBIQUITOUS. IN ANY CASE, THE PAYMENT OF INTEREST WO ULD DEFINITELY EARN IT GOODWILL, A VALUABLE BUSINESS ASSET. UNDER THE CIRCUMSTANCES, T HEREFORE, WE ARE IN AGREEMENT THAT THE PAYMENT OF INTEREST TO THE SAID CUSTOMER, SHRI SREE DHAR, WAS MADE BY WAY OF COMMERCIAL EXPEDIENCY, AND THE LIABILITY IN ITS RESPECT AROSE ONLY DURING DECEMBER, 1996. ACCORDINGLY, WE CONFIRM ITS ALLOWANCE, DELETING THE IMPUGNED DISALLOWANCE. WE DECIDE ACCORDINGLY. 4. THE ASSESSEE HAS RELIED ON THE DECISIONS IN T HE CASE OF CIT VS. COCHIN REFINERIES LTD . 210 ITR 1060 (KER.) AND STATE BANK OF TRAVANCORE VS. ACIT , 318 ITR (AT) 171 (COCHIN). THE SAID DECISIONS HAVE BEEN PERUSED, TH OUGH WE FIND THEM AS NOT DIRECTLY APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE. THE MATTER IS PURELY FACTUAL, AS WOULD BE APPARENT FROM THE FOREGOING, WITH WE BE ING IN AGREEMENT WITH THE ASSESSEE I.T.A. NO.1161 /COCH/2005 ACIT, ERNAKULAM V. SKYLINE BUILDERS 6 THAT THE LAW IS CLEAR THAT QUA A LIABILITY WHICH IS CONTESTED, THE YEAR OF THE RE SOLUTION OF THE DISPUTE, I.E., WHEN THE LIABILITY CAN BE SAID T O HAVE CRYSTALLISED, IS THE PERIOD OF ITS DEDUCTIBILITY, AND WHICH IS ALSO THE SUM AND SUBSTA NCE, THE RATIO, OF THE CITED DECISIONS (ALSO REFER PARA 3.3 OF THIS ORDER). 5. IN THE RESULT, THE REVENUES APPEAL IS PARTL Y ALLOWED. SD/- SD /- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 25TH NOVEMBER, 2011 GJ COPY TO: 1. M/S. SKYLINE BUILDERS, RAJAJI ROAD, ERNAKULAM, C OCHIN-35. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -2(2), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .